Business columnist

James Wheeldon, the lawyer who exposed the corporate regulator's culture of favours for big banks during an explosive Senate hearing last month, has provided further evidence that the watchdog is ''beholden to the banks''.

The former insider at the Australian Securities & Investments Commission is still waiting for a detailed response to his allegations more than four weeks later.

Wheeldon had told the Senate how peak lobby group, the Financial Services Council, and a lawyer on secondment from MLC (owned by NAB) were instrumental in changing the laws for the benefit of the banks. The changes involved a special exemption, or relief order, for online superannuation calculators, which people use to compare one super offering with another.

After James Wheeldon's address to the senate, ASIC chairman Greg Medcraft issued a blanket denial of the claims of favouritism. Commissioner Peter Kell also claimed Wheeldon was wrong and vowed the regulator would come down hard on any inappropriate or misleading activity by the banks.

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Now Wheeldon has identified further misleading and inappropriate activity right under the regulator's nose via an analysis of Colonial First State's online super calculator. CFS is the wealth division for the Commonwealth Bank.

Contradicting Kell's rebuttal, Wheeldon found serious flaws in the CFS calculator. BusinessDay put these to the bank last week. The questions and answers in full are online today. Not only has Colonial failed to deal with the claims but it has failed to credibly demonstrate that it is complying with the law.

''This calculator gives confusing and misleading advice,'' says Wheeldon. ''It has no educational purpose. It is a marketing gimmick. When the retail super funds lobbied ASIC to amend the law to allow the use of online calculators as marketing tools, lawyers within ASIC's consumer protection division specifically warned that this sort of thing would happen. But ASIC ignored those concerns and instead did as the lobbyists demanded. The Australian people should know that ASIC is beholden to lobbyists for the banks and retail super funds and consumer protection has suffered as a result.''

Here are the key issues James Wheeldon identified:

■ The calculator is labelled as an ''educational tool'' but it tells potential customers that the highest returns come from the most aggressive strategies and that picking the highest-risk, highest-fee option will deliver the most funds in retirement. CFS was unable to explain why this is an appropriate message for consumers.

■ It is impossible to work out how fees are applied by the calculator. The fine print says it uses returns that are ''after fees'', then two paragraphs later says ''returns are before fees'' and that the analysis is done on a ''pre fee basis''. CFS in an email said returns were after taxes and fees.

■ The calculator advertises returns of 9.25 per cent a year for CFS High Growth FirstChoice Multi-manager fund, an incredible performance since it seems to be after fees, taxes and 3 per cent inflation.

■ The calculator is misleading. The fine print sets out ''estimated fees'' for some specific CFS financial products but the fees advertised by the calculator are lower than the fees disclosed in the Product Disclosure Statement for the same products. CFS was unable to explain this discrepancy.

■ Applying the default settings and the ''balanced'' investment option, the calculator outputs a super balance of $358,549 at 65. Using the same settings, the AMP calculator says even in a strong market the most you can expect is $273,787.

CFS did not respond to questions about whether the calculator is FOFA compliant. As it gives ''personal advice'', the law says the calculator must be FOFA compliant unless an exemption applies. The only relevant exemption is the relief ASIC first issued in 2005 in response to lobbying by the Financial Services Council (of which CFS is a member). Paradoxically, the calculator does not even comply with ASIC's ''calculator relief''. ASIC's relief order requires the calculator to allow the user to change any of the assumptions used by the calculator - yet the fees used are fixed.

ASIC's relief also prohibits using the calculator to ''advertise or promote'' specific financial products. But the CFS calculator advertises investment returns from various CFS FirstChoice Multi-manager products.

Incidentally, in response to questions put to MLC about its calculator compliance last year, MLC took the calculator down from its website.

Questions to Commonwealth Financial Services

1. Can CFS explain how fees are applied in the CFS superannuation calculator?

2. The fine print to the calculator says that “the calculator uses returns that are after earnings tax within superannuation and after fees”. Two paragraphs later, it states that estimated returns are “before fees and after 15% tax”. Please explain.

3. The fine print to the calculator says that the estimated management costs used by the calculator are “based on CFS FirstChoice Multi-manager series”, and there is a table that shows estimated fees ranging from 0.89% (for the Defensive allocation) through to 1.15% (for the High Growth allocation). However the SPDS for CFS’ “FirstChoice Investments” (dated 4/12/13) shows that management fees are, in reality, much higher than as indicated in the calculator - ranging from 0.98% for Defensive through to 1.44% for High Growth. Please explain.

4. Is it appropriate to suggest to investors who use this “educational tool” that picking the “high-growth” option post-retirement will lead to the most funds in retirement?

5. Has CFS conducted an independent audit of the reasonableness of the calculator’s assumptions and outputs?

6. Is the calculator FOFA compliant? If not, why not?

7. Does CFS rely on ASIC Class Order 05/1122 in providing this calculator?

8. Class Order 05/1122 provides (at Condition 5(b)) that the calculator must enable the user to change “any of the factors (the assumptions) that are applied by the calculator in working out a numerical amount (the estimate) relating to a financial product”, other than statutory assumptions (such as tax). Can you please explain how a user of the CFS calculator is able to change the fees that are applied by the calculator in working out the estimated super balance?

9. If the user cannot change the fees that are applied by the calculator, does that not mean the calculator is not compliant with ASIC’s class order relief?

10. Does CFS rely on ASIC Class Order 05/1122 in providing this calculator?

11. Class Order 05/1122 provides (at Condition 5(b)) that the calculator must enable the user to change “any of the factors (the assumptions) that are applied by the calculator in working out a numerical amount (the estimate) relating to a financial product”, other than statutory assumptions (such as tax). Can you please explain how a user of the CFS calculator is able to change the fees that are applied by the calculator in working out the estimated super balance? If the user cannot change the fees that are applied, does that not mean the calculator is not compliant with ASIC’s class order relief?

12. The fine print to the calculator says that the estimated management costs used by the calculator are “based on CFS FirstChoice Multi-manager series”, and there is a table that shows estimated fees ranging from 0.89% (for the Defensive allocation) through to 1.15% for the High Growth Allocation. However the actual PDS for CFS’ “FirstChoice Investments” shows that management fees are, in reality, much higher than as indicated in the calculator - ranging from 0.98% for Defensive through to 1.44% for High Growth. How is the calculator not misleading?

ANSWERS FROM COMMONWEALTH FINANCIAL SERVICES

The calculator is a tool that can help educate a variety of different customers, but it is not used to recommend products or provide financial advice. Up front (before the calculator is activated) we recommend investors speak to a financial adviser before taking action.

Mercer (the recognised independent expert in this area) provides the return assumptions in the calculator.

The calculator has undergone our routine thorough signoff process to ensure it is compliant.

The projections used in the calculator are based on returns that are after tax and after fees.